After A Big Friday Rally And A Quiet Overnight Session, Energy Markets Pushing 2-3 Cent Gains In Refined Products

Market TalkMonday, Oct 16 2023
Pivotal Week For Price Action

After a big Friday rally, and a quiet overnight session, the buyers have stepped back into energy markets this morning, pushing 2-3 cent gains in refined products while oil prices are up about 50 cents/barrel. The fear of potential supply issues caused by escalation in the Middle East and the G7 sanctions on Russia continue to be cited as the driver of the big recovery rally after most energy contracts had their biggest weekly drops in 6-months to start October. 

We saw the expected bandwagon bail out by money managers in last Friday’s CFTC COT report, with speculative funds reducing their bets on higher energy prices by double digit percentages across the board during the big selling just before Hamas invaded Israel. Based on what we saw Friday, it’s likely we’ll see a large percentage of those funds jumping right back on as the supply fear trade took back control from the demand fear trade for the time being.

Baker Hughes reported a net increase of 4 oil rigs active in the US last week, snapping the streak of declines that’s pushed the rig count to a 19-month low. US producers set a new all-time record for oil output last week according to DOE estimates despite the fact that the rig count is down by more than 120 from last year’s peak, and down more than 1,000 from the levels we saw in 2015.

The DOE announced the winners in a nationwide RFP to develop hydrogen hubs, and is providing $7 billion to 7 different projects across the country. Naturally, the administration that set to make natural gas pipelines impossible to build just before Russia invaded Ukraine is now authorizing natural gas as the primary feedstock for more than half of these projects as the world continues to come to terms with the physical realities of transition to cleaner energy sources and the legislators’ need for cheap energy to stay in power.

A California judge ordered P66 to stop construction on its Rodeo renewables facility due to ironic environmental concerns.  It’s unclear whether or not the facility which is in the process of converting from a traditional refinery can continue making gasoline and diesel from crude oil while the court case proceeds. The lawsuit behind the order also targets the recently converted Marathon Martinez facility, although that plant is apparently still able to operate. 

Reuters published an interesting read Friday on why new Chinese refining capacity is poised to protect Europe from diesel shortages again this winter, while capitalizing on cheap Russian crude. 

A Dallas FED study shed further light on the change in exports from Russia since the Ukraine invasion, and the impact of sanctions by the G7.

The National Hurricane Center gives 70% odds of a new tropical storm forming in the Atlantic this week, but early forecast models suggest this storm will stay out to sea and not threaten the US. 

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Market Talk Update 10.16.2023

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap